Wednesday, October 7, 2015
The SEC On "Robo Advisors"
I have written several times on "Robo Advisors". In one of those analyses I pointed out that the information gathered through the short on line questionnaire severely limits the extent to which the portfolio chosen does a good job in meeting the clients specific circumstances. It seems like the SEC agrees with many of these points. In an document entitled
Robo advisors do not adhere to the high standard of care under fiduciary investment law, particularly the Uniform Prudent Investor Act. They do not evaluate an investor’s total financial circumstances in light of all relevant factors and do not reasonably verify all facts relevant to a client as required by the Act.
The Act requires a fiduciary to make investment decisions “not in isolation” but in the context of the portfolio “as a whole” and as a part of an overall investment strategy having risk and return objectives suited to the trust. Robo advisors do just the opposite — they make isolated investment decisions that do not necessarily consider the investor’s total portfolio. Robo advisors also do not monitor client investments for suitability on an ongoing basis.
Regardless of whether you choose to handle your investments on your own with a brokerage account ,through a robo advisor or through a human advisor it is important to understand the very different services each provides.